Why Inflation Is a Bigger Threat Today Than in the 1970s

“Inflation is bad today, but at least it’s not the 1970s…”

You hear this a lot these days.

It’s hard to think of the 1970s without thinking of the decade’s double-digit rise in the cost of living.

Things got so bad Americans took to wearing “Whip Inflation Now” buttons…

It was a campaign President Ford dreamed up to urge Americans to curb their spending.

But the annual inflation rate climbed into double digits anyway.

So feeling that inflation was worse for savers in the 1970s than it is now is natural.

But as you’ll see today, 2020s inflation is even more challenging for us as wealth builders in one important – and often overlooked – way.

Then we’ll get into some simple moves you can make right now to stay ahead of inflation.

Over the past 12 months, inflation has shot up 6.2%…

That’s going by Washington’s official gauge – the Consumer Price Index (CPI). We know it's higher on many common items we need.

That’s the biggest yearly jump since 1990. And the press has made a big deal out of it.

But the inflation rate is only half the picture when it comes to growing your wealth.

The other half – the one missing from most mainstream analysis – is where interest rates and bond yields are.

To show you what I mean, let me take you back to 1973…

Richard Milhous Nixon was still president.?The Godfather?won Best Picture at the Oscars.

And the annual inflation was the same as today’s – 6.2%.

If you stuffed dollars under your mattress, you were getting 6.2% poorer a year in “real” (or inflation-adjusted) terms.

But most people don’t save that way. They look to earn income on the dollars they tuck away… say, via certificates of deposit (CDs) at the bank or Treasury bonds.

And in 1973, these sleep-easy investments paid out a LOT more than they do today.

Take what you could have earned on a CD back then…

In 1973, the average monthly yield on a 3-month CD was 6.5%.

Even with a 6.2% inflation rate, you could have outrun inflation by sticking your money in the bank.

And the average yield on a 10-year Treasury note was 6.9%.

That would have also allowed you to grow your buying power.

Compare that with today…

The highest yield available on a 3-month CD is 0.4%.

That locks in a real yearly?loss?of 5.8% (6.2% minus 0.4%).

And bonds aren’t much better…

At writing, the 10-year Treasury note yields 1.5%.

That’s more than what the bank will pay you on a CD.

But it’ll still cut your buying power by 4.7% a year (6.2% minus 1.5%).

Now, let’s zoom in on 1979 – the decade’s peak inflation year…?

Jimmy Carter occupied the White House. The Oscar judges swooned over?The Deer Hunter.

And the CPI shot up 11.3% for the year.

That’s still not as bad for savers as inflation is today.

Because the income on sleep-easy investments was still relatively high…

In 1979, the average yield on a 3-month CD was 9.8%.

That would cut your buying power by 1.5% (11.3% minus 9.8%).

But that’s still a better deal than backsliding by 5.8%, as is the case for folks who put their dollars into 3-month CDs today.

And in 1979, you could have earned 9.4% a year by putting your money into the 10-year T-note.

That lost you 1.9% (11.3% minus 9.4%) a year in real terms. But it was still better than the 4.7% loss of buying power on offer today.

Why am I telling you this?

Inflation may not be as headline-grabbing as it was in the 1970s.

But thanks to much lower rates of income on sleep-easy investments, it could damage your savings even more. Many folks dismissed it as 'transitory'. I wasn't one of those folks. Instead, I have been writing for months that we need to take inflation seriously.

As I showed you in more detail?here , “hard assets” are great alternatives to cash and bonds.

Hard assets are hard to produce more of relative to existing supply. These include everything from gold and silver… to?other metals such as lithium… to?land … to crytpo . Real Estate is particularly interesting...and this turnkey approach requires only a small investment...and no toilets, tenants, and termites!

You may not be able to tap into the high yields and interest rates that were available in the 1970s. But if you favor hard assets over cash and bonds, you’ll be able to grow your wealth through the inflation of the 2020s.

(h/t Chris Lowe)